Invest or Pay Off Mortgage?

elvina

Hi

We are just in the process of selling our endowment due to poor performance and we are looking into the best ways to deal with the money to give us the best return so that we can pay off our mortgage in 11 years.

I am a non tax payer and have worked out that we will get more at the end by investing the money and paying off at the end of the mortgage however I am not certain that I have taken everything into account.

We will obviously save on the endowment payments, same for both options, then for the invest option we would get the interest each year. With the pay off some of the mortgage option we would obviously reduce our mortgage payments each month hence saving that amount per month.

We have just under £13,000 coming to us to pay off a mortgage of £20,650 and I was wondering if anyone could please let me know that we are right about thinking that the invest route would be better.

Many thanks

Elvina

silvercar

If you invest the money then you are reliant on the return on the investment to decide whether it would be better than paying it off the mortgage. Crystal ball gazing!

The usual advice is to use the proceeds of the endowments to reduce your mortgage and keep your mortgage payments at their current level plus the amount you would otherwise be paying in endowment premiums.

That way you save even more interest and pay your mortgage off sooner without increasing your current outgoings.

Two things to check, that you have life cover to replace that provided with the endowments and that there are no penalties for repaying part of your mortgage early.

Moniker

Definitely use the money to pay off the mortgage and then keep your repayments at the same level if you can afford it. That way you will definitely pay off in less than 11years - I am assuming you have a repayment mortgage and not an interest only one? If you have interest only talk to your lender about making at least part of the mortgage a repayment one so that you reduce the term by paying off some of the capital each month. You would have to find a very high interest paying savings vehicle to get a return equal to the interest you would save by paying off early.

elvina

Thanks for the replies so far. We have an interest only deal for 3 years and can only pay off 10% per year so over the 3 years could use the money that we are getting from sellling off the endowment to pay off a chunk of the mortgage a bit per year. However we cant pay any more than the 10% off per year without incurring penalties so if we paid off 10% per year we would have to invest the remaining part of the money till the next year which we are fine with but this also means that we couldnt add the saving from the endowments to paying off the mortgage till year 4 so would it be worth saving the whole lot while we can get a good rate of interest and then starting to pay off when savings levels drop? We were thinking of using a fixed term bond.

Thanks

Elvina